In Massachusetts, as in many states, provisions of fire insurance policies are set by statute. The long-ago author of the legislation was one heck of a micromanager.
The fire insurance statute provides for a “reference procedure,” in which a panel of three arbitrators, or “referees,” determines the amount of loss or damage. Mass. Gen. Laws ch. 175 § 99 (Eleventh).
The reference proceeding determines only the amount of the loss sustained or the sound value of the property, unless both parties agree that the proceeding will determine other issues as well. The reference proceeding ordinarily does not affect any defenses to the claim itself.
Pursuant to the statutory scheme the insurer must, within ten days after receiving the written demand for reference from the insured, submit to the insured in writing the names and addresses of three potential referees. The insured must, within ten days, notify the insurer in writing of his or her choice of one of those people to act as referee.
The insured also submits to the insurer the names and addresses of three potential referees. The insurer must notify the insured in writing within ten days of its choice of one of those persons to act as referee.
The two referees chosen have ten days to agree upon and select a third referee. If they fail to do so, then either of them or the parties may make written application to the commissioner of insurance to appoint a third referee.
The referees must reduce their award to writing. The third referee must deliver the award to the insured and to the insurer.
If an award is rendered by the referees in favor of the insured, the insurer and the insured are each liable to the third referee for one half of his or her charges for compensation and expenses. However, the third referee’s charges are paid by the insurer, who deducts from any award the insured’s share of such charges. If the award is rendered in favor of the insurer or if no award is rendered, the insurer is liable to the third referee for his or her charges, but may deduct one half of the charges from any payment it makes to the insured.